bostonbubble.com

[CJ]

Just some experience to share with others.

Last week, I went to 5 houses with my agent found a ranch which is priced below the assessment. Since it's only 10 minutes walking to the station, so my wife will not have to drive to work, I thought that could be a great choice. Few days later, I called my agent again for 2nd visist. I also brought my check book and the pre-aproval document.

Anyway, before we went into the house. My agent told me this house is on short-sale. The owner borrow about 420k from bank, but his house is priced around 340k. He told me for first time buyer, it has too many risks, such as longer waiting, people don't want to leave....etc. Anyway, in the end I listened to him and didn't buy the house.

However, I still feel a bit strange about this experience...... especially I told my agent, because I travel very often, if I don't buy this house, I may have to wait until fall or next spring. He will not earn anything if I don't buy a house. And in this slow market, it could take much longer for me to make decission.

1) So, what was he really thinking? Any idea?'

2) BTW, I visited few houses and found some of the owners are in financial trouble. Looks like it will only get worst probably until 2008 fall or 2009 spring. I predict MA market will god south for another 10%, but probably not much more, because of the stable job market and the still low interest rate.However, even it lost 10%, MA housing is still very expensive.

And it's bad that I don't want to wait later than 2008 spring.

[AgentGrn]

Wow ... an agent with some moral fortitude. Applaudible.

I think he's right on the short-sell warning sign issue. One problem with people getting foreclosed on is that they tend to neglect if not outright damage their property. That would make it a royal pain to be the homeowner in that circumstance.

[Condo Fee]

I'm really not sure what he was thinking, even more so, I'm not sure what you were thinking buying a house. There's a bizillion people upside down in their properties and you want to jump in the fray? Give it a couple years, you'll be all the happier for it, if the wife nags, get rid of her, don't succomb to financial suicide to keep up with the Joneses

[AgentGrn]

Amen to the Joneses comment. I prefer the following myself:

"He who dies with the most toys, still dies."

[CJ]

I know exact what you were talking about. Honestly I think the housing market around mestro-Boston will go south about 10% in next 1-2 year, but nothing more. Some of you who read partick.net or bostonbubble.com may expect a larger lost. I hope so too, but I don't think it will happen.

Frankly, even mestro-Boston housing has been down about 10-15%, it's still way too expensive. It needs at least another 20-30% correction to go back to historical level. However, I don't think it will happen because of: 1) job market is not bad, 2) Fed will not raise rate much (they lost their last weapon......) 3) a lot of people like me are running out of patience (I have been waiting for 4 years!!) and these people have cashes for huge down-payments 4) MORE IMPORTANTLY, this country is running without a direction. There are just too much printed money flowing around. Everything is so inflated. The real inflation rate is at least 6% (not the Fed reported as 2.5-3.5%......which is fake btw). The result is housing will be way much more expensive than we had, like 5-7 times (depends of city) of household income. In the old days, real estate always syncs with stock market, but not anymore! (at least before a majore correction....such as foreign goverments dumps US currency......)

For the reasons, I think if I find something cheaper, like a short sale 5-10% under the current market, I can live with that. Even the market goes south 10% because of that stupid subprime problem, I will not lose much.

It's really sad that as a hard working person, my income is at least equal or higher than most average household incomes and with a 25% down payment, I still have a hard time to find a decent 1300- 1400 Sq. feet house within 40 mins driving to Boston. Now some state law makers consider the bail-out program to help those sub-prime home owners. It's strange that they never think about who are the real victoms......

Anyway, just some thoughts to share with you. I may wait until early next year, but no more!! American dream is so fxxxup!

Cheers,

CJ

PS: As you can see, English is not my first language.

[admin]

[CJ]

Hello admin,
Thanks for your graph! Actually I tought about that too, but I don't think Fed will raise rate much...... as I said, they lost their last weapon.

If they raise rate to a more normal.... 8% or so, the housing market will got 20-30% hit. Of course that will be great and it will be back to the historical normal level.
However, they will not do it. Without the free/ easy money, millions people will file chapter 11 and lots of people will be forced to leave their homes (which they don't really own btw). The economy will hit hard. Fed rather sits there and does nothing. The problem will get worst more slowly, but in the long term it's not their business or concern anyway. Wall Street's attention only lasts for 3 months. They will keep asking Fed to lower the rate or at least stay where it is now. Auto, housing....... industries all love and need this low rate.....

About 60-69% Americans are home owners. They don't like to see their property values go south, even lots of them have hard time to pay the high property tax (most of them only have one house, strangely they thought house is an important investment......). These people mostly are middle classes . They are more likely the active voters. They have a strong influence too. Since the election is coming, Fed just will not do anything dramatically. (BTW, I think these guys are evil.)

I think some day the party will be over, but it's hard to imagine in 5-10 years. They probably will keep the rate around the same level, and wait the housing market to slow down slowly (I guess another 10% lower), also wait for the income to rise to catch up the unreasonble high price housing.

Just my 2 cecnts!

[admin]

CJ,

Mortgage interest rates are only indirectly controlled by the Fed. It may not matter whether they want to prop up the bubble or not as the rates on mortgages are set by the market. A major part of that market at present is China. It has been estimated that China's vast and growing dollar reserves are responsible for reducing US long-term interest rates by 1.5%. Once China unpegs the yuan form the dollar, rates should rise. I think it is solely a question of when, not if. But again, this is just one example of what could cause rates to rise - I think there are other reasons that rates could rise and I would at least recommend running your numbers with hypothetical rate increases in order to see what the risks are.

- admin